A slowly emerging opportunity from Brexit?

by Bloomberg27 Apr 2017

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A slowly emerging opportunity from Brexit?

Investors may be on the fence about investing in Europe or Britain right now. The sell-off that rocked British and European markets last year may still be fresh in their minds. On the other hand, could the start of Britain’s secession process from the EU present opportunities?

“At the moment we’re not hearing a great deal about the opportunities, but they are bound to be there,” Ken Odeluga, a market analyst with London-based broker firm City Index, told the Globe and Mail. “The data may suggest that [economic growth in Europe is picking up] at a very sluggish rate, but nevertheless it is definitely happening now.”

The British pound and euro have lost ground against other G10 currencies, and stock market values in the UK and Europe have been suppressed. Considering those factors, investors from other regions stand to benefit by buying, according to Odeluga. He identified the best equity values from the consumer goods and food and beverage sectors.

European resource stocks have seen percentage rises in the triple digits ever since commodities started rebounding last year. Odeluga said these increases were because of ruthlessly efficient practices like asset sales and debt reduction.

Among the EU’s 28 member states, he considered Germany the most stable region for investment because of its history of economic strength, formidable manufacturing sector, and central location. He also said the PIGS — Portugal, Italy, Greece, and Spain — were countries worth considering for adventurous investors willing to bet on recovery plays.

However, Odeluga saw a spot of gloom in the European banking sector. The prevailing low interest rates in the region, he said, will likely present a ceiling to banks’ recovery at some point.

“We have a very positive, constructive view on Europe,” Lindsay Patrick, who manages global ETF distribution for RBC Dominion Securities, told the Globe and Mail. According to her, the current chill in the European equity market is largely due to negative news getting priced in.

Those looking to access the European market can do so through various ETFs; investors could choose options that are hedged to the Canadian dollar. They could also seek broad European exposure, or go for a fund that excludes Britain.

“You need to look inside the ETF to be sure what exposure you’re getting,” Patrick said. “Make sure you look under the hood.”